The main purpose of the financial accounting deals with the preparation of the financial statements of the company so that it could show in its financial performance and also position to the people that exist outside the company. The users of the financial users include investors, creditors and the suppliers.
The main purposes of the financial accounting and reporting include in the following:
The main reason for the financial accounting and reporting is concerned with the amounts that the company has paid towards it taxes. If these financial reports are not prepared using the pre-defined standards and the business procedures, then each individual shall report its financial transaction as it deems fit.
And as such, this should not be the case.
Also, in respect of the investors, the companies prepare its financial reports for the use of an investor too since that would help them in understanding the exact fair picture of the company. The following are few of the calculations that are made in by the investors when they feel like investing in the business.
The financial accounting and reporting is also useful for the purposes of internal decision making. Hence the fairness and the accuracy of these records is of an utmost importance and in no case, be compromised. This exactly where the company runs into trouble since it uses the legacy methods for the purposes of preparing in the financial reports.
The financial accounting and the reporting is also helps the users of these financial statements to get an idea about the company and also decide as to whether the company would be able to get him returns.
The company would also be able to understand if the business would be profitable in the future if these financial statements are prepared in the fairest manner.
Cash serves as the oxygen for the company and if these financial statements are prepared in the most accurate manner that would help the company understanding the stress of shortage of cash in hands.
The company needs to know and understand the options that it has when it comes to the investing of money in the outside world or purchase in assets for the company. If the company knows exactly the amount that it has in hands, it would be able to know the amount that it would be able to spend on the purchase of the assets (Accounting education, 2018).
Further, if the company or the management on its own accord seeks to prepare the financial reports and do financial accounting of its transactions, then there would be no similarity between the financial statements being prepared by the company. No benchmarking would be possible. The scandals like Enron could still take place in the absence of any rules and regulations and therefore, it is due to that reason, the financial statements should be regulated and not be in the hands of the management.
The main aim of the AASB is the development and the maintenance of the financial reporting standards for all of the sectors of the economy of Australia. It helps in the issuance of the different versions of the documents which pertains with the International accounting standards. It produces in the accounting standards that are treated just like any other transaction. It further signifies in the influence of the development of all of the IFRS’s. The board also helps in the identification of the various area that requires in the review and the introduction of the standards that covers in these specific areas. Also, the board helps in the promotion of the accounting standards that could be consistent and also be interpreted (AASB, 2018).
The AASB is the agency of the government of Australia and all of the standards issued by it are termed as the Australian Accounting Standards and includes in the Australian equivalents which are somewhat equal to the IFRS’s. The board started to adopt in the IFRS’s during the initial years and it started off by removing some of the options and also by adding in some of the disclosures. In the year 2007, the board sought the modification of the Australian Accounting Standards that were similar to the IFRS’s which were issued by the IASB for the profit entities (IAS plus, 2018).
The IASB on the other hand serves as an independent body which states in the various accounting standards and is based in London. It comprises of about 15 member countries and includes in the country of the United States too. This board is funded by the money which is received from the major accounting firms, the private financial institutions and the industrial companies. The board is not responsible for the purposes of maintaining or financing in the IFRS site (IFRS, 2018).
The board is an independent body that helps in the experts in setting up the accounting standards, in preparing, auditing or using the financial reports.
The members of the board are responsible for the purposes of the development and the publication of the standards of IFRS which are the IFRS’s for SME’s (IFRS, 2018).
In the nutshell, the IASB board just has 9 countries as its members, so may be the accounting standards prepared by it are not made compulsory since if these standards are followed by just 9 countries, and the other accounting standards are being followed by the others, then no benchmarking could be made possible and there would be an issue with the financial reporting parties. Also, the board IASB is on a small scale, so may be the board is not competent enough to understand the queries of the industry and the necessary actions that are required in for the same.
The following tables shows in the analysis of the various items of equity for the 4 companies for 4 years:
Kaili resources:
|
Particulars |
2017 |
2016 |
2015 |
2014 |
Change in NZ $ |
Change in % |
||||||||
|
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
General understanding |
Cause for change |
|||||||
|
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
||||||||||||
|
Share Capital |
9,82,669.00 |
9,82,669.00 |
9,82,669.00 |
9,02,669.00 |
80,000.00 |
– |
– |
8.86% |
0.00% |
0.00% |
these are the amounts that are invested into the company by the outsiders |
could be due to new capital being introduced into the company |
No change |
No change |
|
Reserves |
9,76,257.00 |
16,88,364.00 |
23,13,684.00 |
17,95,525.00 |
5,18,159.00 |
-6,25,320.00 |
-7,12,107.00 |
28.86% |
-27.03% |
-42.18% |
these are the amounts that have been set aside by the company towards the shares options |
could be due to new capital being introduced into the company |
could be due to repayment of the shares of the company |
could be due to repayment of the shares of the company |
|
Total equity |
19,58,926.00 |
26,71,033.00 |
32,96,353.00 |
26,98,194.00 |
||||||||||
Kairiki Energy limited:
|
Particulars |
2017 |
2016 |
2015 |
2014 |
Change in $ |
Change in % |
General understanding |
Cause for change |
||||||
|
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
||||||
|
Issued capital |
861,01,448.00 |
857,83,048.00 |
856,60,548.00 |
856,60,548.00 |
– |
1,22,500.00 |
3,18,400.00 |
0.00% |
0.14% |
0.37% |
these are the amounts that are invested into the company by the outsiders |
could be due to new capital being introduced into the company, but no change |
could be due to new capital being introduced into the company |
could be due to repayment of the shares |
|
Reserves |
-68,85,355.00 |
-68,76,532.00 |
-20,85,820.00 |
-20,85,820.00 |
– |
-47,90,712.00 |
-8,823.00 |
0.00% |
229.68% |
0.13% |
these are the amounts that from the sum total of the past earnings of the company |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
|
Accumulated losses |
-791,55,215.00 |
-790,08,827.00 |
-834,87,569.00 |
-834,87,569.00 |
– |
44,78,742.00 |
-1,46,388.00 |
0.00% |
-5.36% |
0.19% |
these are the amounts that have been set aside by the company towards the shares options |
could be due to no reserve of the company |
could be due to no reserve of the company |
could be due to no reserve of the company |
|
Total equity |
60,878.00 |
-1,02,311.00 |
87,159.00 |
87,159.00 |
||||||||||
|
Particulars |
2017 |
2016 |
2015 |
2014 |
Change in $ |
Change in % |
General understanding |
Cause for change |
||||||
|
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2013 to 2014 |
From 2014 to 2015 |
from 2015 to 2016 |
||||||
|
Issued capital |
4698,67,326.00 |
4698,67,326.00 |
4698,67,326.00 |
4698,67,326.00 |
– |
– |
– |
0.00% |
0.00% |
0.00% |
these are the amounts that are invested into the company by the outsiders |
No Change |
No Change |
No Change |
|
Reserves |
14,16,280.00 |
15,18,618.00 |
23,10,325.00 |
10,98,439.00 |
12,11,886.00 |
-7,91,707.00 |
-1,02,338.00 |
110.33% |
-34.27% |
-6.74% |
these are the amounts that from the sum total of the past earnings of the company |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
|
Non-controlling interest |
8,52,927.00 |
8,75,499.00 |
12,99,164.00 |
16,44,372.00 |
these are the amounts that are invested by the company by the shareholders that are beyond the control of the company |
could be due to sale of non-controlling interests |
could be due to sale of non-controlling interests |
could be due to sale of non-controlling interests |
||||||
|
Retained earnings/(Accumulated losses) |
-3596,33,099.00 |
-3564,43,968.00 |
-3139,97,076.00 |
-2839,41,250.00 |
-300,55,826.00 |
-424,46,892.00 |
-31,89,131.00 |
10.59% |
13.52% |
0.89% |
amounts pertaining to the previous years profits or losses |
could be due to accumulation of the losses pertaining to the previous years |
could be due to accumulation of the losses pertaining to the previous years |
could be due to accumulation of the losses pertaining to the previous years |
|
Total equity |
1125,03,434.00 |
1158,17,475.00 |
1594,79,739.00 |
1886,68,887.00 |
||||||||||
|
Particulars |
2017 |
2016 |
2015 |
2014 |
Change in $ |
Change in % |
General understanding |
Cause for change |
||||||
|
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2014 to 2015 |
From 2015 to 2016 |
from 2016 to 2017 |
from 2013 to 2014 |
From 2014 to 2015 |
from 2015 to 2016 |
||||||
|
Contributed equity |
385,35,283.00 |
375,40,470.00 |
368,44,550.00 |
353,01,510.00 |
15,43,040.00 |
6,95,920.00 |
9,94,813.00 |
4.37% |
1.89% |
2.65% |
these are the amounts that are invested into the company by the outsiders |
could be due to new capital being introduced into the company |
could be due to new capital being introduced into the company |
could be due to repayment of the shares |
|
Reserves |
6,13,744.00 |
5,44,245.00 |
4,81,065.00 |
3,86,849.00 |
94,216.00 |
63,180.00 |
69,499.00 |
24.35% |
13.13% |
12.77% |
these are the amounts that from the sum total of the past earnings of the company |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
could be due to the losses that the company could have suffered in the previous year |
|
Retained earnings/(Accumulated losses) |
-361,01,479.00 |
-349,56,748.00 |
-327,70,039.00 |
-306,52,304.00 |
-21,17,735.00 |
-21,86,709.00 |
-11,44,731.00 |
6.91% |
6.67% |
3.27% |
amounts pertaining to the previous years profits or losses |
could be due to accumulation of the losses pertaining to the previous years |
could be due to accumulation of the losses pertaining to the previous years |
could be due to accumulation of the losses pertaining to the previous years |
|
Non-controlling interests |
– |
– |
||||||||||||
|
Total equity |
30,47,548.00 |
31,27,967.00 |
45,55,576.00 |
50,36,055.00 |
||||||||||
(Annual reports, 2017 and 2015).
The following table shows in the debt to equity ratio of the companies:
|
Particulars |
Kaili |
Kairiki |
Kangaroo |
Key petroleum |
|
Debt |
73,408.00 |
2,14,426.00 |
848,15,175.00 |
30,79,423.00 |
|
Equity |
19,58,926.00 |
60,878.00 |
1125,03,434.00 |
30,47,548.00 |
|
Debt to equity ratio |
0.037473595 |
3.5222248 |
0.753889655 |
1.010459228 |
This is the ratio which is also termed as the risk ratio which calculated in the weights of the total amount of the debt of the company as against the total equity that the company has.
The higher this ratio, the better it is for the company (Corporate finance, 2018).
In the given case, the debt equity ratio of Kairiki Energy Limited seems to be the best and that of Kaili energy limited seems to be the worst.
Conclusion:
In the nutshell, the role of the financial accounting and reporting is of an utmost importance since if the managers are given the liberty of deciding on the format and the reporting requirements of the managers, then the whole purpose of the financial accounting and reporting would be defeated. The roles of IASB is only confined to the recommending of the interpretations of the accounting standards and no more.
The debt to equity ratio is also termed as the risk ratio which means that the higher this ratio, the lesser levered the company is and lesser riskier it is.
References:
Aasb.gov.au. (2018). Frequently asked questions. [online] Available at: https://www.aasb.gov.au/About-the-AASB/Frequently-asked-questions.aspx#qa1522 [Accessed 20 Sep. 2018].
Accountingedu.org. (2018). What is Financial Accounting?. [online] Available at: https://www.accountingedu.org/what-is-financial-accounting.html [Accessed 20 Sep. 2018].
Bloomberg.com. (2018). financial statements. [online] Available at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=879797 [Accessed 20 Sep. 2018].
Corporate Finance Institute. (2018). Debt to Equity Ratio – How to Calculate Leverage, Formula, Examples. [online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/ [Accessed 20 Sep. 2018].
Iasplus.com. (2018). Australia. [online] Available at: https://www.iasplus.com/en/jurisdictions/oceania/australia [Accessed 20 Sep. 2018].
Ifrs.com. (2018). International Financial Reporting Standards – Questions and Answers. [online] Available at: https://www.ifrs.com/updates/aicpa/ifrs_faq.html#q2 [Accessed 20 Sep. 2018].
Ifrs.org. (2018). IFRS. [online] Available at: https://www.ifrs.org/groups/international-accounting-standards-board/ [Accessed 20 Sep. 2018].
keypetroleum.com.au. (2018). Annual report 2015. [online] Available at: https://www.keypetroleum.com.au/sites/keypetroleum.com.au/files/asx-announcements/6735223.pdf [Accessed 20 Sep. 2018].
keypetroleum.com.au. (2018). Annual report 2017. [online] Available at: https://www.keypetroleum.com.au/sites/keypetroleum.com.au/files/asx-announcements/6852282.pdf [Accessed 20 Sep. 2018].
wcsecure.weblink.com.au. (2018). Annual report 2015. [online] Available at: https://wcsecure.weblink.com.au/pdf/KRL/01736446.pdf [Accessed 20 Sep. 2018].
www.kailigroup.com.au. (2018). Annual report 2015. [online] Available at: https://www.kailigroup.com.au/wp-content/uploads/2018/04/180328-KLR-ASX-release-Kaili-Annual-Report-Final-for-ASX-release-1.pdf [Accessed 20 Sep. 2018].
www.kailigroup.com.au. (2018). Annual report 2017. [online] Available at: https://www.kailigroup.com.au/wp-content/uploads/2015/01/170317-KAILI-RESOURCES-LTD-AR_311215-FINAL-SIGNED-for-release.pdf [Accessed 20 Sep. 2018].
www.kangarooresources.com. (2018). Annual report 2017. [online] Available at: https://www.kangarooresources.com/wp-content/uploads/2014/07/Annual-Report.pdf [Accessed 20 Sep. 2018].
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